Family relationships and value can make succession planning for family businesses more challenging than for other companies. Here are some suggestions to make the planning and execution less trying.
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Obtain a valuation of the business regardless of whether it will be transferred between generations or sold. The valuation will establish a reference point for negotiation with potential buyers and validates (or corrects) family members' perceptions of value and becomes the basis for wealth transfer planning.
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Maximize the company's value by making sure financial accounting systems are in good order, family expenses are not run through the business, there are no unusual accounting practices, and an independent CPA prepares year end statements. Other indications of sale readiness include expanding sales growth, diversification of the customer base, a stable pool of employees and an absence of pending regulatory actions.
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Identify prospects. Outside advisers are usually necessary. An adviser can provide market perspective, and may be able to help develop alternative sale options that meet the seller's long-term objectives.
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Negotiate the structure of the sale. Once you have agreed upon a price, there are many options as to the payment structure and purchase allocation. Your CPA is a good source of advice at this, as well as every other stage in the process.
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Set goals that reflect the family's core values and legacy. Determine which, if any, family members will remain as active participants in the business or as passive investors. This will lead to the creation of exit strategies and the creation of personal financial plans for family members.
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Prepare the business for change. Much can happen between initial negotiations and closing the deal. Engage the nonfamily management team in the planning, and give them an incentive to stay loyal to the company and the family.
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Designate a leader to oversee business management during this phase.
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Plan whether the responsibilities of the current management team will continue, or if a change is needed.
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Communicate the plan to all involved (observing necessary confidentiality.) This includes family members, management and employees, customers, key vendors and banks. You may find value in discussing your plan with other business owners who have gone through a transition.